First Look

Abstract—Falling transportation costs and rapid technological progress in recent decades have precipitated an explosion of cross-border flows in goods, services, investments, and ideas led by multinational firms. Extensive research has sought to understand the geographic patterns of foreign direct investment (FDI). This chapter reviews existing theories and evidence specifically addressing questions including: How is FDI distributed across space? Why does the law of gravity apply? How do the costs of transporting goods, tasks, and technologies influence firms’ decisions to separate tasks geographically and locate relative to one another? We discuss a variety of theoretical mechanisms through which transport cost and other geographic friction influence FDI and present the key empirical studies and findings.

Publisher's link: http://www.hbs.edu/faculty/Pages/item.aspx?num=52121

Abstract—With a young, urbanizing population, abundant natural resources, and a growing middle class, Africa seems to have all the ingredients necessary for huge growth. Nevertheless, a number of multinationals have recently left the continent, discouraged by widespread corruption, a lack of infrastructure and ready talent, and an underdeveloped consumer market. Some innovators, however, have succeeded by building franchises to serve poorer consumer segments; tapping the vast opportunity represented by nonconsumption; internalizing risk to build strong, self-sufficient, low-cost enterprises; and integrating operations to avoid corruption. The difference, the authors believe, lies in the choice between “push” and “pull” investment. MNCs seek growth by pushing current products onto emerging middle-class consumers. They retain some large portion of their existing cost structure and operating style, and thus set prices that limit market penetration. The winning strategy diverges from this approach in almost every respect. When innovators develop products that people want to pull into their lives, they create markets that serve as a foundation for sustainable growth and prosperity.

Publisher's link: http://www.hbs.edu/faculty/Pages/item.aspx?num=52102

Abstract—Can a credit expansion induce a boom and bust in house prices and real economic activity? This paper exploits the federal preemption of national banks in 2004 from local laws against predatory lending to gauge the effect of the supply of credit on the real economy. Specifically, we exploit the heterogeneity in the market share of national banks across counties and in state anti-predatory laws to instrument for an outward shift in the supply of credit. First, a comparison between counties in the top and bottom deciles of presence of national banks in states with anti-predatory laws suggests that the preemption regulation resulted in an 11% increase in annual lending in the 2004–2006 period. Our estimates show that this lending increase is associated with a 3.3% rise in annual house price growth rate and a 2.2% expansion of employment in the non-tradable sectors. These effects are followed by a decline in loan origination, house prices, and employment of similar magnitude in subsequent years. Furthermore, we show that the increase in the supply of credit reduced mortgage delinquency rates during the boom years but increased them in bust years. Finally, these effects are stronger for subprime and inelastic regions.

Publisher's link: http://www.hbs.edu/faculty/Pages/item.aspx?num=52081

Abstract—This chapter explores the role that firms have played over time in promoting international trade and investment. It takes a chronological perspective and is organized around a first wave of globalization from the mid-nineteenth century until the 1920s and a second wave that started after World War 2, intensified from the 1980s until around the 2008 global financial crisis.

Publisher's link: http://www.hbs.edu/faculty/Pages/item.aspx?num=52086

Abstract—Long-established rituals in pre-existing cultural groups have been linked to the cultural evolution of large-scale group cooperation. Here we test the prediction that novel rituals—arbitrary hand and body gestures enacted in a stereotypical and repeated fashion—can impact intergroup bias in newly formed groups. In four studies, participants practiced novel rituals at home for one week (Experiments 1, 2, and 4) or once in the lab (pre-registered Experiment 3), and then were divided into minimal ingroups and outgroups in the laboratory. The findings offer mixed support for the hypothesis that novel rituals generate intergroup bias. Modest evidence from rituals repeated for one week, plus a null effect for one-time rituals suggest that novel rituals can inculcate bias, but only when they have certain features. It appears rituals need to be sufficiently elaborate and repeated over a period of time to impact group functioning. As a first step, we find modest support for the notion that novel rituals can promote ingroup cohesion, but at the expense of the outgroup.

Publisher's link: http://www.hbs.edu/faculty/Pages/item.aspx?num=52113

Abstract—Conversation is a fundamental human experience, one that is necessary to pursue intrapersonal and interpersonal goals across myriad contexts, relationships, and modes of communication. In the current research, we isolate the role of an understudied conversational behavior: question-asking. Across three studies of live dyadic conversations, we identify a robust and consistent relationship between question-asking and liking: people who ask more questions are better liked by their conversation partners. When people are instructed to ask more questions, they are perceived as higher in responsiveness, an interpersonal construct that captures listening, understanding, validation, and care. We measure responsiveness with an attitudinal measure from previous research as well as a novel behavioral measure: the number of follow-up questions one asks. In both cases, responsiveness explains the effect of question-asking on liking. In addition to analyzing live get-to-know-you conversations online, we also studied face-to-face speed-dating conversations. We find that speed daters who ask more questions during their dates are more likely to elicit agreement for second dates from their partners, a behavioral indicator of liking. We trained a natural language processing algorithm as a “follow-up question detector” that we applied to our speed-dating data (and can be applied to any text data to more deeply understand question-asking dynamics). The follow-up question rate established by the algorithm explained why question-asking led to speed-dating success. We also find that, despite the persistent and beneficial effects of asking questions, people do not anticipate that question-asking increases interpersonal liking.

Publisher's link: http://www.hbs.edu/faculty/Pages/item.aspx?num=52115

Abstract—Contracts, transactions, and records of them provide critical structure in our economic system, but they haven’t kept up with the world’s digital transformation. They’re like rush-hour gridlock trapping a Formula 1 race car. Blockchain promises to solve this problem. The technology behind bitcoin, blockchain is an open, distributed ledger that records transactions safely, permanently and very efficiently. For instance, while the transfer of a share of stock can now take up to a week, with blockchain it could happen in seconds. Blockchain could slash the cost of transactions and eliminate intermediaries like lawyers and bankers, and that could transform the economy. But, like the adoption of more Internet technologies, blockchain’s adoption will require broad coordination and will take years. The authors describe the path that blockchain is likely to follow and explain how firms should think about investments in it.

Publisher's link: http://www.hbs.edu/faculty/Pages/item.aspx?num=52100

Abstract—This paper reviews recent research regarding high-skilled migration. We adopt a data-driven perspective, bringing together and describing several ongoing research streams that range from the construction of global migration databases, to the legal codification of national policies regarding high-skilled migration, to the analysis of patent data regarding cross-border inventor movements. A common theme throughout this research is the importance of agglomeration economies for explaining high-skilled migration. We highlight some key recent findings and outline major gaps that we hope will be tackled in the near future.

Publisher's link: http://www.hbs.edu/faculty/Pages/item.aspx?num=52090

Abstract—This study tests the importance of Ricardian technology differences for international trade. The empirical analysis has three comparative advantages: including emerging and advanced economies, isolating panel variation regarding the link between productivity and exports, and exploiting heterogeneous technology diffusion from immigrant communities in the United States for identification. The latter instruments are developed by combining panel variation on the development of new technologies across U.S. cities with historical settlement patterns for migrants from countries. The instrumented elasticity of export growth on the intensive margin with respect to the exporter's productivity growth is between 1.6 and 2.4 depending upon weighting.

Publisher's link: http://www.hbs.edu/faculty/Pages/item.aspx?num=52089

Abstract—Despite the recognition that knowledge sharing among employees is necessary to enact knowledge strategy, little is known about how to enable such sharing. Recent research suggests that social media may promote knowledge sharing because they allow social lubrication and the formation of trust. Our longitudinal and comparative analysis of social media usage at two large firms indicates that users who participate in non-work interactions on social media catalyze a cycle of curiosity and passable trust that enables them to connect and share knowledge. Paradoxically, the very non-work related content that attracts users to social media and shapes passable trust can become a source of tension, thwarting a firm’s ability to encapsulate knowledge in the form of routines and to use it to enact its strategy.

Publisher's link: http://www.hbs.edu/faculty/Pages/item.aspx?num=52087

Abstract—Even as we approach the twentieth anniversary of widespread file sharing, its impact on the sale of copyrighted material remains in dispute. We contributed to this debate with an early study, “The Effect of File Sharing on Record Sales: An Empirical Analysis,” that was published in the Journal of Political Economy in 2007. Perhaps surprisingly, we found that piracy contributed to the decline in music sales but was not the main cause. In this article, we review and respond to recent criticism of our work by Stan Liebowitz in Econ Journal Watch. We show how the use of proxies for file sharing can result in misleading conclusions. We close by reviewing what we know about the impact of file sharing on record sales today. In our view, new music formats are an important if understudied channel through which changes in technology influence the demand for entertainment.

Publisher's link: http://www.hbs.edu/faculty/Pages/item.aspx?num=52079

Abstract—An increasingly popular route to success as a small business owner is “acquisition entrepreneurship”—buying and running an existing operation. If you’re considering such a path, the authors offer practical advice for each stage of the process. Think it through. Do you have the right qualities for the job (managerial skills, confidence, persuasiveness, persistence, a thirst for learning, and tolerance for stress)? Are you willing to trade the benefits of working at a large organization for the chance to be in charge? Search diligently and efficiently. Plan to spend six months to two years—full time—following leads and systematically vetting business prospects. Focus on companies that are consistently profitable and have annual revenues of $5 million to $15 million. During this phase, you can self-finance or establish a search fund to recruit potential investors. Strike a deal. When you’ve settled on a target, do preliminary due diligence to confirm the business’s viability and arrive at a fair offer. If the seller accepts, you’ll have about 90 days to work with your accountant and attorney on confirmatory due diligence. Transition into leadership. After the sale closes, your priorities should be building relationships (with employees, customers, and suppliers) and setting up processes to ensure steady cash flow.

Publisher's link: http://www.hbs.edu/faculty/Pages/item.aspx?num=52103

Abstract—Rightly known as the “father of negotiation analysis,” Howard Raiffa was my thesis advisor, colleague, and friend for over 30 years. The bulk of this article develops an account of his intellectual trajectory from game theory to statistical decision theory to decision analysis and to negotiation analysis. It suggests how these superficially separate fields relate to each other and inform the theory and practice of negotiation. I intersperse this account with nuggets of insight that I picked up from Howard for dealing with people, analyzing problems, doing research, teaching effectively, and building a legacy.

Publisher's link: http://www.hbs.edu/faculty/Pages/item.aspx?num=52076

Abstract—The importance of effective team leadership for achieving surgical excellence is widely accepted, but we understand less about the behaviors that achieve this goal. We studied cardiac surgical teams to identify leadership behaviors that best support surgical teamwork. We observed, surveyed, and interviewed cardiac surgical teams, including 7 surgeons and 116 team members, from September 2013 to April 2015. We documented 1,926 surgeon-team member interactions during 22 cases, coded them by behavior type and valence, and characterized them by leadership function to create a novel framework of surgical leadership derived from direct observation. We surveyed non-surgeon team members about their perceptions of individual surgeons’ leadership effectiveness and correlated survey measures with individual surgeon profiles created by calculating percentage of behavior types, leader functions, and valence. We identified seven surgeon-leadership functions and related behaviors that impact perceptions of leadership. These observations suggest actionable opportunities to improve team leadership behavior.

Publisher's link: http://www.hbs.edu/faculty/Pages/item.aspx?num=52114

Abstract—We collaborate with a Swedish retail chain to conduct a field experiment in which we change the sales force compensation scheme from a monthly to a daily quota plan. This intervention, along with a control group that did not encounter a change in compensation structure, allows us to analyze the effect of quota frequency on sales force performance. Over a given time frame (i.e., a month), we find that shifting to a temporally more frequent quota plan—the daily quota plan as compared to the monthly quota plan—leads to an increase in sales performance, mainly for low-performing salespeople, by preventing them from giving up in the latter days of a month. However, we find high-performing salespeople to give up more frequently in earlier days of a month under the daily quota plan. With more frequent quotas, salespeople sell more quantities of low-ticket items, which benefit the firm through a decrease in returned merchandise. However, with quotas set over shorter time horizons, even the highest-performing salespeople focus mainly on incremental sales, resulting in a decrease in sales of higher-value-added and higher-margin products, thereby hurting firm profits.

Abstract—Emerging markets are characterized by underdeveloped institutions and frequent environmental shifts. Yet they also contain many firms that have survived over generations. How are firms in weak institutional environments able to persist over time? Motivated by 69 interviews with leaders of emerging market firms with histories spanning generations, we combine induction and deduction to propose reputation as a meta-resource that allows firms to activate their conventional resources. We conceptualize reputation as consisting of prominence, perceived quality, and resilience and develop a process model that illustrates the mechanisms that allow reputation to facilitate survival in ways that persist over time. Building on research in strategy and business history, we thus shed light on an underappreciated strategic construct (reputation) in an under-theorized setting (emerging markets) over an unusual period (the historical long run).

Download working paper: http://www.hbs.edu/faculty/Pages/item.aspx?num=52099

Abstract—Across the globe, the average commute is 38 minutes each way, and it is well known that lengthy commutes have negative effects on employees’ well-being and job-related outcomes. Despite the importance of commuting in the employees’ everyday life, very little is known about offsetting such negative effects of lengthy commutes. Integrating theories of self-control and boundary work in psychological and organizational sciences, we argue that engaging in future-oriented thinking about specific work goals while commuting, what we call work-related prospection, positively influences job satisfaction because it facilitates employees’ transition into their work role. Across two field studies and one field experiment, we find that employees higher in trait self-control are less likely to experience negative effects of lengthy commutes because they use their commuting time to engage in work-related prospection. In a field experiment, employees asked to engage in work-related prospection during commuting reported higher levels of job satisfaction in comparison to multiple control groups. Although commuting is typically seen as the least desirable part of an employee’s day, our theory and results point to the benefits of using it as a time period to engage in work-related prospection.

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A data analyst at Basecamp is evaluating the results of pricing research and its potential implications for the venture’s latest version of its project management software product. The case examines both the process and outcomes of pricing research for a collaborative software product and in a fast-growing venture with a distinctive approach to customer acquisition. Basecamp is purchased and used through a web interface without any sales outreach or personal contact between the company and its customers. As well as a pricing analysis, the case examines the links between a venture’s product policy, target customers, funding sources, management style, promotional tools, and pricing approach.

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“A Warby Parker of mattresses? Somebody is going to do it. Why not us?” This was the topic of a conversation begun in spring 2013 among Gabe Flateman, Philip Krim, Neil Parikh, and T. Luke Sherwin. The four met as members of a New York City venture accelerator program. All admired Warby Parker’s success in delivering on the promise of “designer eyewear at revolutionary prices,” via a direct-to-consumer sales model. “Big Mattress,” their term for the current manufacturer/retailer system, featured not only high prices, but also, as they would describe to many in the days ahead, "one of the worst buying experiences in the world."

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This module reading pulls together key concepts and techniques from the Strategy Execution series into an integrated model—the levers of control. The four levers are (1) belief systems, (2) boundary systems, (3) diagnostic control systems, and (4) interactive control systems. The module discusses how top managers use the levers of control to inspire commitment to the organization’s purpose, stake out the territory for experimentation and competition, coordinate and monitor the execution of today’s strategies, and stimulate and guide the search for strategies of the future. The power of this integrated approach to strategy implementation is illustrated in two contexts: the introduction of performance measurement and control systems over the life cycle of a growing business and the use of the levers by managers taking charge of a new business. While this module is designed to be used alone, it is part of the Strategy Execution series.

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This module reading provides directions for using the online Job Design Optimization Tool (JDOT) that is available free of charge from Harvard Business School Publishing. This tool can be used to design, or test the design, of any job in any organization. The module introduces the concepts of span of control, span of accountability, span of influence, and span of support and explains how these variables affect job design. After adjusting the spans for the job being analyzed, JDOT allows you to test whether the resources provided to the job are sufficient to meet the demands imposed by that job. After determining whether a job is designed for success (or failure), JDOT provides a menu of job attributes that can be modified to improve the effectiveness of the job. While this module is designed to be used alone, it is part of the Strategy Execution series.

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A merger deal of two Samsung group companies becomes a center of a corruption scandal. The merger of Cheil Industries and Samsung C&T was seen as a crucial step to transfer power to Lee Jae Yong, the heir of Samsung group. The deal was criticized to purposefully undervalue Samsung C&T’s stocks to transfer wealth to Lee at the expense of the shareholders. Elliott Management, a New York–based hedge fund, launches a campaign urging shareholders to vote against the merger. However, the National Pension Service (NPS)—a major shareholder of Samsung C&T—votes in favor of the deal. The case sheds lights on the political ties between the government and the family controlled conglomerates in South Korea, which have powered the country’s economy for decades.

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